A note for kids about exchange rates

In his post, Oliver listed the currency and exchange rates for each country we will visit.

Currency is the kind or system of money used in each country in the world. When we travel to other countries we need to use their currency; we can’t use our Australian dollars. So in England we will use pound sterling. You write it like this, £5 (and not like this, $5). In Denmark we will use Danish krone, and in The Netherlands we will use the euro (before 2002 they used the Dutch guilder). These currencies can look quite different to ours. For instance, in Australia our $2 coins are smaller than our $1 coins, but in England their £2 coins are bigger than their £1 coins. In Australia our notes are different colours and sizes for the different denominations ($5, $10, $20, $50, $100), but in the USA all of their notes are green and about the same size. So it’s easy to get confused and give the wrong money.Australian_$1_Coin

To get pounds and kroner and euros for our trip we need to buy them with Australian dollars. An exchange rate “between two currencies is the rate at which one currency will be exchanged for another”. For our trip, we are interested in the exchange rates for pounds, kroner and euros. In other words, how many Australian cents or dollars will it cost us to buy 1 pound, 1 krone or 1 euro?

These exchange rates go up and down. But now it costs:
  • $1.57 in Australian money to get 1 pound
  • 18 cents in Australian money to get 1 krone
  • $1.34 in Australian money to get 1 euro

So if Oliver saves up $100 in pocket money for our trip, he can exchange it for 64 pounds, 557 kroner, or 75 euros. You can try doing your own currency conversions here.

When Oliver’s dad and I first travelled to England about 15 years ago, the exchange rate was more like 3 to 1. It would cost $3 in Australian money to get 1 pound. It was very expensive to travel there. But the exchange rate has improved a lot.

Another important thing to know about is the cost of living. A packet of hot chips at our local chicken shop costs $2. If a packet of hot chips also costs £2 in London and the exchange rate is 3 to 1, those chips cost us $6 in Australian money. Pretty expensive chips. But if the exchange rate is 1.5 to 1, as it is now, then those chips are only about $3 in Australian money. So not too bad. When you are travelling you have to keep your eye on the exchange rate and the cost of the things you are buying. When Oliver and I are in London, for example, we will be able to multiply by 1.5 the cost of things we want to buy to work out if it is cheaper than Australia or much more expensive.

This is not too tricky when the rate of the Australian dollar and the foreign currency is pretty close (like now for the US dollar, where the exchange rate is almost 1 to 1; it costs about 1 Australian dollar to buy 1 US dollar). But it gets more challenging with a currency like the Danish krone.

Right now it costs 18 Australian cents to buy 1 Danish krone. So those $2 chips in Australian money would cost 11 Danish kroner if the cost of living is about the same in Australia and Denmark. You might think “whoa, $11 for chips”. But you have to remember that each krone is  worth less than an Australian 20 cent piece. 11 x 20 cents is $2.20 in Australian money. But maybe chips in Denmark cost 15 kroner because the cost of living is higher there. How much is that in Australian money?

15 (kroner) x 18 cents (the current exchange rate) = $2.70 in Australian money. So a bit more expensive than here at home but not too bad.

As you can see, Oliver and I will have lots of opportunities to practice our maths skills while we travel.

One thought on “A note for kids about exchange rates

  1. Pingback: 4 days to go, thinking about money and things | oliver&amandaineurope

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